Re-acceleration of fab spending is underway, says SEMI and analyst

MOUNTAIN VIEW, Calif. -- After a summer pause in orders for chip production equipment, bookings for wafer fab tools have started to heat up again, said industry observers and officials during the first quarterly update conference call hosted by Semiconductor Equipment and Materials International (SEMI) today.

The trade group's new forecast for semiconductor capital spending calls for modest growth this year to $23 billion followed by a 21.7% increase to $28 billion in 2000 and a 25% rise to $35 billion in 2001. The forecast shows equipment spending by chip makers reaching $50 billion in 2004. In 1998, semiconductor equipment sales plunged 21.4% to $22 billion from $28 billion in 1997, according to SEMI.

During today's conference call for with the press, SEMI president Stanley Myers said the recession-battered capital equipment industry was now returning to "steady, slightly more robust growth" after a slowing of orders in the summer. Even last week's powerful earthquake in Taiwan--which stopped the island's 28 fabs from producing devices due to power outages and some minor damage--is not expected to have a significant impact on the recharged recovery.

"Structural damage to facilities there appear to have been slight and companies are working around the clock to bring the production back online," Myers said. "It looks like the glassware and quartzware problem are probably the biggest problems," added Myers, referring to breakage of tubes and boats used in high-temperature process tools (see today's story on recovery efforts).

While production gear shipments to Taiwan's fabs were interrupted in the past week, analyst Jay Deahna of Morgan Stanley Dean Witter said chip makers appear to be ready again to take delivery of new fab tools as they restart frontend processing lines. Taiwan's growing chip industry has been a key driver in the 1999 recovery. About 25% of Applied Materials Inc.'s new orders for equipment came from Taiwan in the company's last fiscal quarter, noted Deahna, who fielded questions during SEMI's conference call this afternoon.

The Morgan Stanley analyst said semiconductor capital spending entered "the re-acceleration phase" at the end of August and in early September. "In 1999, based on our bottoms-up survey of chip makers around the world, we are looking at a 13-14% increase in capital spending," Deahna said. "Our forecast for next year is 27%."

Semiconductor equipment orders start out strong in the first half of 1999 but chip makers needed to "digest" the surge in bookings. SEMI's book-to-bill ration for August slipped to 1.03 after peaking at 1.33 in March (see Sept. 22 story). Deahna said the dip in bookings was temporary partly caused by the summer vacation seasons and the need to bring recently purchased tools into production before adding more capacity.

In the upcoming round of quarterly results, Deahna said he believes the "healthy" U.S. capital equipment suppliers will be in line or above Wall Street's consensus on revenues and earnings. "That outlook incorporates the fact that there were some modest dislocations in equipment shipments towards the end of September to the island of Taiwan," said the Silicon Valley-based analyst.